Mat Newman January 19 2015 15:40:09

Every now and then I come across an article published by Fortune Magazine back in December 1994. Yes, that's over 20 years ago and as you know Notes is now into it's 25th Year. As I mentioned a few weeks ago, Alan Lepofsky, Carly Tyler and I have a session at ConnectED that will share some of the highlights from the past 25 years of Lotus and Notes. I also have a little something prepared that I'm going to share next week at #IBMConnectED, but for the moment have a read of the article and check out how much of it is still true, even 20 years later:

(FORTUNE Magazine) – EVERY DAY, Microsoft's grip on the software universe grows a little tighter. Yet there's one fast-growing market in which this $4-billion-a-year omnivore has been utterly stymied. In groupware, Lotus Development rules. Its product Lotus Notes is fast becoming for computer networks what Lotus 1-2-3 was for PCs-the software that changes the way people view their computers and the way companies work. Without question, Notes already is the most important business software tool in the new era of client-server PC computing. The Notes market is still tiny -- analysts estimate it at less than $200 million this year -- but the early lock the software has achieved on key customers gives it spectacular potential. Some 4,000 companies have bought Notes; it has been installed on roughly one million PCs. Sales, this year an estimated 600,000 copies, are doubling annually. The list of big Notes customers reads like a who's who of corporate America: Chase Manhattan, Compaq Computer, Delta Air Lines, Fluor, General Motors, Harley Davidson, Hewlett-Packard, IBM, Johnson & Johnson, J.P. Morgan, Nynex, Sybase, and 3M, just to name a few. These realities have not escaped Bill Gates' notice. Though he pooh-poohed Notes when it first appeared, Microsoft has launched one of the biggest development efforts in its recent history to build a Notes-buster it calls Microsoft Exchange. Originally scheduled to go on the market early in 1994, Exchange has hit repeated delays and is now not expected until the second half of next year. Still, says Jim Manzi, the sardonic ex-McKinsey consultant and former journalist who is Lotus's CEO: "I would be insane to say that Microsoft won't be competitive with us. It is an awesome force in American capitalism."

Well he should know. Microsoft has been mauling his company in the market for applications software -- spreadsheets, word processors, and the like -- on which Lotus depends for most of its $1 billion in annual sales. In the past year, Microsoft has lured away droves of customers with innovative marketing and relentless price cuts. Microsoft's Excel spreadsheet now tops the charts as Lotus 1-2-3 once did. Investors, not surprisingly, are spooked: Lotus stock plunged from $85.50 a share to $30.56 earlier this year. It recently traded for $39.25. For all the ferocity of its onslaught, however, Microsoft can't stop customers from loving Notes. Like a hit movie, this product has buzz: If ever there was a software program you need to understand to run your business, users are saying, Notes is it. Notes takes the processors and electrical connections of a computer network and makes them work like synapses in a vast collective brain. The intention, says Ray Ozzie, the program's inventor, is to enable "people in business to collaborate with one another and to share knowledge or expertise unbounded by factors such as distance or time zone differences." That's a pretty good description of a product so multifaceted and versatile that it defies precise definition. You install Notes on all the machines in your network, including Windows PCs, Macs, and Unix machines on desktops and the so-called servers to which they connect. (At $300 per user and up, Notes isn't cheap. A stripped-down desktop version costs $99.) It then lets you pick the brains of everyone in your organization as if they all sat at the next desk. Result: You become a whole lot smarter with your PC than you'd be without it. In effect, Notes disseminates knowledge from those who have it to the those who need it most. Don't confuse Notes with E-mail, which requires that the sender know you're in the dark. With Notes, everyone puts his contributions onto databases, and you tell the system what kinds of information you want to see. Ann Palermo, a technology consultant at International Data Corp. in Framingham, Massachusetts, who co-managed an extensive study of the impact of Notes on productivity, calls it "revolutionary." She says it signals "the second significant wave in desktop computing" -- spreadsheets and word processors having been the first. Palermo used extremely conservative methods in her study yet calculated that companies using Notes got an average 179% return on their investment in the third year after installation. For service businesses, she calls the returns "stratospheric," averaging 351%. Conventional productivity measures don't explain why Notes works so well. It helps companies join the new economy -- to become flatter in structure, more / physically dispersed, team-based, information-driven , and partnership- focused. Sheldon Laube, chief technologist at Price Waterhouse, a major Notes customer, calls working with it "a religious experience, because it's so empowering to the end user." Says David Nadler, chairman of Delta Consulting Group, which advises big companies on organization and management: "This is the democratization of information. Notes reflects the new work patterns rather than traditional ones." Notes has proved especially popular in fast-growing companies in fast- changing industries. Compaq Computer gave Notes to its sales force in 1992 when it wanted to lower costs and boost productivity. Now salespeople seldom come to the office at all, preferring to spend their time with customers and working at home. Hewlett-Packard, Intel, and Dell Computer all use Notes extensively. Boston Chicken, the restaurant chain that is one of the fastest- growing companies in the U.S., relies on Notes to keep track of expansion plans, market research, advertising copy, cooking procedures, and recipes. Says President Bruce Harreld: "We couldn't keep growing 100% a year without this type of technology." Notes is the software many of the leading dispensers of knowledge use internally to build and maintain their collective intelligence. Price Waterhouse and Andersen Consulting are neck and neck for title of world's biggest Notes user: Each now has nearly 40,000 employees on it. McKinsey & Co. is another Notes user. The software could have an even broader impact. Many organizations are using Notes to build info links to key customers and suppliers. The practice could get a huge boost next year, when AT&T launches a service called Network Notes. At a monthly charge of between $35 and $75 per user, the company will let customers dial up its computers, arrayed in what it calls "server farms," to store and replicate databases for their own customers, suppliers, or internal use. Such commerce, Manzi believes, could turn out to be the defining function of the information superhighway: "I don't think the superhighway has anything to do with the consumer electronics market, which is the way it's normally positioned. The big opportunity for the rest of the decade is around companies transforming the way they do business across boundaries with partners and suppliers." Nobody has been able to duplicate Notes, though every major software company has tried, including Novell, the No. 1 supplier of office network programs, and Oracle, No. 1 in so-called relational databases. That's because Notes is not just one technology but a subtly interwoven set of capabilities that Ozzie and a few colleagues crafted over a decade. The idea for Notes came to Ozzie in 1981, when he was just 25. As an undergraduate at the University of Illinois, he'd spent many hours on a mainframe system called Plato that had terminals at universities all over the world. Like customers of today's online services, computer nerds used Plato to trade information, hold electronic discussions, and pass along gossip. When Ozzie got a job helping develop an early network of workstations at Data General, he missed the sense of community he'd experienced using Plato. He decided to build the equivalent software for a PC network. Few people then thought of the PC as anything more than a tool for calculating spreadsheets or writing letters, but Ozzie foresaw that people would eventually spend most of their workday at their screens and would want to communicate. The notion was too radical for venture capitalists, only a handful of whom even returned his calls. Lotus founder Mitch Kapor finally agreed in late 1984 to fund a startup partly so that Lotus could tap Ozzie's expertise for other projects. Ozzie set up Iris Associates with four other programmers in one room of a Littleton, Massachusetts, farmhouse that had been converted to office space. They spent five years developing Notes. Not until 1989 were there enough PCs in networks for Lotus to put the product on the market. Ozzie and his team built in plenty of user-pleasing features. Like Lotus 1-2-3, Notes is easy to customize. A sales organization, for instance, might use it to set up an electronic bulletin board that lets people pool information about prospective clients. If some of the info is confidential, it can be restricted so not everyone can call it up. Notes makes such homegrown applications and the data they contain accessible throughout an organization. The electronic bulletin board you consult in Singapore is identical to the one your counterparts see in Sioux City, Iowa. The key to this universality is a procedure called replication, by which Notes copies information from computer to computer throughout the network. You might say Ozzie figured out how to make the machines telepathic -- each knows what the others are thinking. This hidden feature is the one that has most bedeviled programmers at Microsoft and other companies as they've sought to imitate Notes. To understand just how daunting were the problems that Ozzie and his team solved with replication, imagine being a salesperson on the road, consulting a database you share with hundreds of co-workers. You dial in from your hotel room and download whatever Notes files you need. Then you tap away at your laptop, adding comments and modifying numbers. Meanwhile, scores of your colleagues may be working at their machines, making similar changes. What happens when you log back into the server and your work flows back into the database, now much altered by your fellows? Notes reconciles all that material, no matter how complex. The program works in part by consulting people when it's confused. If two users revise the same document in different ways, for example, the system will ask which version to keep, or whether to keep both. How did Ozzie pull all this off? A modest man, he explains simply, "Ten years," adding that he and his team didn't get Notes right at first, but learned from the experience of early customers. The program is now in its third version, and a fourth is due next year. Users don't think about all the plumbing, of course. They just log on and work. At Johnson & Higgins, a New York insurance broker and consulting firm that arranges coverage for many of the world's largest companies, Notes gives 2,700 brokers in 85 offices around the globe the ability to exchange ideas as if they were all within hailing distance. Says Bill Wilson, who oversees the system: "All those heads around the world are our lifeblood. We provide better solutions to our clients using this system." Among the hundreds of Notes databases at Johnson & Higgins is one called Market Assistance, which brokers use to request help. On October 24, Marge Davis in New York put up a message asking if anyone knew of an insurance company that offered a certain unusual kind of policy, one to cover liability for mistakes computer operators make when entering data. The next day brokers in Hartford, Houston, and Philadelphia, two of whom Davis didn't know, suggested companies that might have what she needed. They even included phone numbers of people for her to contact. All 2,700 brokers weren't obliged to look at Davis's query, as they would have been if she'd broadcast an all-points bulletin via E-mail. To help users protect themselves from info glut, Notes lets them browse through just the databases and bulletin boards they want and sort active requests in any number of ways. For instance, you might ask to see only entries pertaining to environmental liability coverage during building construction in the continental United States. "It's the biggest brainstorming session going," says David Peck, a senior vice president in Stamford, Connecticut, who manages Johnson & Higgins's work for IBM and GTE. "You often find a problem you face has already been solved by somebody else. We have almost eliminated reinventing the wheel." Peck, 49, says he spends about four hours a day on Notes -- even though he learned to type only two years ago. In addition to the shared databases, Peck loves the news feed from hundreds of publishers that is hooked into the system. If he wants, Notes will automatically display just articles that pertain to IBM and GTE. He says, "I can talk to my clients about what's new in their companies before they've even had a chance to open the Wall Street Journal." Nontechnical users can construct simple applications after a few hours of training. Secretaries, for example, have no problem setting up a database to log incoming correspondence or to track the office's latest restaurant choices. Says Richard Eichen, a consultant at CGI Systems in New York who installs lots of Notes setups: "It's the first time mere mortals can go in and really help build their own applications." Professional programmers are needed to produce more sophisticated applications, like those that disseminate data companywide. An entire industry has emerged to help customers get the most out of Notes. Lotus counts more than 6,700 companies in its list of official "Notes business partners," up from just 500 in early 1993. These include systems integration outfits like CGI as well as firms that train programmers and users. Some 300 companies now offer over 600 products and services to work in conjunction with Notes. These are applications like NewsEdge from Desktop Data, which brings the news feed onto David Peck's PC. Software developers peddle specialized Notes applications, such as handling patient records in a managed-care health program. A Los Angeles startup called SkyNotes is about to launch a product that lets users of the Apple Newton and other hand-held computers connect to Notes databases wirelessly. It all adds up: The Notes industry is beginning to resemble the panoply of companies providing products and services for users of Microsoft's Windows operating system. Those companies help promote Windows and assure it long life; these could do the same for Notes.

Microsoft and others believe that Lotus has barely begun to tap Notes' market potential: Every networked PC in the world, now about 68 million, could potentially use groupware. The software makers desperately want to cut in on the business before Lotus gets much further. But neither Novell nor Oracle seems likely to field a similar product in the next year, and Microsoft has had trouble dealing with Notes from the start. In a 1991 interview, Bill Gates scoffed that Notes was "basically just a bad operating system." He added with characteristic cockiness that all its features would soon be available in a real operating system from Microsoft. About a year later, Microsoft executive vice president Steve Ballmer said that the company's upcoming Windows for Workgroups would do all Notes did and more. But that product turned out to be just an easy way for PC users to share files and printers and send messages. Now Microsoft is sending out mixed signals. Tom Evslin, who commands the battalion of 250 employees assigned to complete Microsoft Exchange, declares that "to counter Lotus Notes would be a dumb thing for us to do, because that market is too small." Nevertheless, he adds, "I can't think of any raw capability of Notes we won't have." His boss Jim Allchin, Microsoft's senior vice president for business systems, contradicts him: "No, I won't make the claim that Exchange will do everything Notes does." But he adds that in many ways Exchange will be superior to Notes, for example, in replication. When FORTUNE pressed Evslin to substantiate his claims, he suggested, "Talk to customers who have used the beta." (Beta is industry jargon for a preliminary version of a product.) Sure, we answered, give us the names. More than a week passed. Finally a Microsoft PR person gave us one name at a big media company. When FORTUNE called, the user said his company wouldn't permit him to talk. This we reported to Microsoft. Several more days passed. The PR person called again with names at AlliedSignal and Shell Oil. Mary Ann Tallman, a technologist at AlliedSignal, said she had been busy installing Microsoft's E-mail product and had never seen Exchange. Tom Webb, a Shell project manager, has actually used versions of Exchange and likes some things about it. But Shell also uses Notes, he pointed out, and he was not prepared to compare the products.

SO FAR, Evslin hasn't made his case. Nor are outside experts convinced. Says ! Jeffrey Tarter of Softletter, a newsletter in Watertown, Massachusetts: "I have seen no evidence that Lotus's major competitors truly understand what Notes does." Says Eichen of CGI: "Microsoft keeps inviting me over to see Exchange and then just serves me lunch. They've missed the window. They will eventually build something terrific, but it won't compete with Notes." Mark Tebbe, CEO of Lante Corp., a consulting and systems integration company in Chicago, has closely followed the development of Exchange and knows Notes well. He says: "A lot of what Exchange was originally intended to be has been toned down. It won't offer all of what Notes has." He and other experts believe Exchange will pale beside Notes in replication, and that it will be very difficult for amateurs to customize. On the other hand, Tebbe thinks Exchange will provide better tools for professional programmers. Is Ray Ozzie worried that Microsoft will make his brainchild obsolete? "You won't hear me get defensive about Exchange, because I know from personal experience how difficult it is to do what we've done," he says. He concedes, though, that Microsoft will probably eventually get it right. Meanwhile, Lotus technology chief John Landry is peeved by the general tolerance of Microsoft hype. "Their rhetoric is unbelievable and nobody says, 'Bullshit!' " he complains. "I personally wish they would just come out with the damn product and get it over with, because they will be demolished when they do." What worries Lotus executives -- and shareholders -- is that Microsoft doesn't need a superior product to pull customers away. Its market power gives it immense leverage against relatively puny Lotus. Microsoft will use its hammerlock on PC operating-system software to seed the market for Exchange. Every copy of its new Windows 95 operating system, due to emerge by mid-1995 and expected to sell in the tens of millions, will incorporate code that lets a PC serve as a "client" in an Exchange groupware system. (Customers will still need to buy Exchange software for their servers.) Microsoft can also undercut Lotus on price. Whereas Lotus depends on charging premium prices for Notes to maintain its profitability, any profits from Exchange will be just a drop in Microsoft's bucket of money. Gates reportedly tried to derail Network Notes, Lotus's deal with AT&T, arguing that AT&T should base its service on Exchange instead. Neither AT&T nor Microsoft will discuss the negotiation, but Microsoft's aggressiveness clearly exasperated one AT&T executive. Says vice president for business data services John Petrillo, who is in charge of Network Notes: "If this country wants an information superhighway that will create wealth, its capacity to create wealth will be improved if we have growth for many participants. If somebody starts out too early trying to get greedy, the whole thing collapses, and that's criminal." Petrillo avoids naming Microsoft or Gates, but it's clear whom he means. "I'm trying to send some messages," he says. "You want to help me do that?" Network Notes could be a monster success, as Gates well realizes, because it promises to serve a powerful need. Forrester Research, an info-tech consulting firm in Cambridge, Massachusetts, predicts that building electronic connections with customers will be the most important challenge for corporate technologists in the next five years. It estimates that by 2002, roughly half of all corporate info-tech spending will be devoted to intercompany connections, up from less than 5% today. Many Notes users are building such connections on their own. Lotus says roughly 60% of companies that have had Notes for two years or more use it in at least one intercompany application. American International Group, an insurer in New York, uses Notes to connect with many of the law firms it hires. Johnson & Higgins shares Notes databases with 12 clients now and anticipates that most of its big customers will be on Notes soon. In the risk management department at its customer James River Corp., a $4.6-billion-a-year paper and packaging company in Richmond, three staffers are linked to Johnson & Higgins via Notes. They share databases with 25 Johnson & Higgins brokers and consultants in Richmond, New York, and San Francisco. Since James River has about 35 insurance policies ranging from environmental liability to coverage for the company cars, there are always electronic dialogues under way. For instance, before James River puts up a new building, its insurers must conduct surveys of various types. The so-called Action Plan database it shares with Johnson & Higgins tracks the deadline for each survey. Says Pat Evers, director of risk management at James River: "We have a living document constantly flowing with current data. For every project, I can find out not only how J&H is doing but also what other people there think about it. There's no question it makes them more responsive to our needs." Network Notes, meanwhile, began test operation in October. AT&T says more than 200 companies asked to participate in the tests, far more than it had planned for. Two of the earliest experimenters are Egghead Software and Compaq Computer. Both are using Network Notes to connect to resellers. Egghead will provide distributors with electronic catalogues, continually updated, complete with pictures, full-text search capability, and even demonstration versions of software products. Compaq's aim is similar. Says Gian Carlo Bisone, vice president for marketing in North America: "Product lives are now shorter while quantities are higher. We cannot afford to let our customers take months to become aware of our products. Our goal is an electronic web that is pretty much in your face." Companies that have successfully built Notes networks agree on a few rules of thumb. Notes works best when knowledge sharing is already part of the corporate culture. The system erodes hierarchy: On a Notes network, rank commands less respect than knowledge. Explains Ellen Walker, who helps manage the Notes network at Johnson & Higgins: "You see someone's name on a database, but unless you know them personally, you have no idea what level they are, and it doesn't matter. In the past, nobody thought of the claims manager's secretary as a carrier of knowledge. But on Notes she can share her knowledge throughout the organization." People who hoard information to get ahead of co-workers don't do well with Notes. Says Christopher Teeter, a partner at Andersen Consulting who helps clients install Notes and uses it extensively himself: "In the networked organization, you gain power by giving it away. The first challenge to rolling out a Notes system is cultural. To use it effectively, you have to be willing to admit what you don't know, which some people see as a sign of weakness. The biggest tool we have in our culture here at Andersen is asking." Companies often find they have to change procedures to make Notes work. At Johnson & Higgins and Andersen Consulting, performance evaluations now include an assessment of how effectively employees share information with colleagues over Notes. By the time it put its sales force on Notes, Hewlett-Packard's PC division had already altered the compensation system to reward people for their work in teams rather than their individual sales efforts. The future of Lotus as a company rides on its ability to develop the market for Notes. In his corner office high above the Charles River in Cambridge, Jim Manzi doesn't deny it. But while he has had to wrestle with a recent decline in sales of desktop applications, Manzi sees the glass as half full: "If we ask ourselves how we're doing compared with every other company we competed with in the 1980s, the answer is really well. All the others are gone with the exception of Microsoft." Manzi believes sales of communications products-Notes and cc:Mail, Lotus's E-mail program-will grow fast enough to offset any further decline of applications products and sustain the company's growth. About 60% of all R&D spending at Lotus now goes to communications software. Manzi says that that part of the company could outstrip sales of desktop applications within two years. Wall Street is cautiously optimistic about Lotus's prospects. Though the stock tumbled in midyear when the desktop business stumbled, most analysts now recommend the shares based on rosy predictions for communications. Says Paul Johnson, a prominent bull who follows Lotus at Robertson Stephens & Co.: "I believe penetration of Notes is about to explode." John Maxwell, an analyst at Stamford's Soundview Financial Group, agrees: "Long-term, the play on Notes is significant." For the time being, the growth of Notes seems unstoppable. Teeter at Andersen Consulting says the firm gets major inquiries from customers about Notes roughly every three days. He says that kind of request by product name is extremely unusual. To learn just how seriously corporate America was taking the product, FORTUNE conducted an informal survey. We randomly contacted 30 companies, all listed on either the FORTUNE 500 or FORTUNE Service 500. Of these, nine are already using Notes heavily, four are using it selectively with plans to increase their deployment, and four expect to start using it widely in the near future. Lotus is striking numerous deals that further cement Notes' leadership and uniqueness. Hewlett-Packard, the world's second-largest computer company, just announced that it would commit to using Notes companywide as well as make a major commitment to selling the product to its customers. It will set up a special practice in its consulting group to help customers install Notes and will also bundle Notes software with some of its biggest-selling server computers. Sun Microsystems recently started including Notes software with all of its servers too. Oracle has apparently accepted Notes' supremacy in ! groupware, at least for the moment, and has agreed to work with Lotus to link Notes with its own database programs. Even Microsoft implicitly conceded the importance of Notes in the marketplace when it announced this fall that it will include code in applications like Microsoft Word and Excel to make them Notes-compatible. For customers, Lotus Notes is in a sense addictive. Notes becomes the repository for much of an organization's corporate memory; to remove vital data once it has spent a few years accumulating in Notes would be costly and disruptive. Says Jim Moore, whose GeoPartners Research consulting firm in Cambridge, Massachusetts, advises high-tech companies on competitive strategy: "A user community gets hooked into Notes. It's hard to think of Microsoft moving people off that." Microsoft will keep doing its best to bury Lotus, but that could begin to turn off customers. Many want these two companies to work together. Says Bill Wilson of Johnson & Higgins: "Rather than thinking of Microsoft replacing Notes, we want to use Microsoft products to supplement it." It might be time for you to start thinking about how your company can use Notes, too, though that could cause a certain gnashing of teeth in Seattle.

what IBM needs to understand is that when you want to sell a product you have to do some marketing. You can make the greatest product, but if you don't tell the people about it, you will never sell them. In my opinion thats IBM's biggest pain.

Many IT managers and CIO's think IBM Notes has died, because nobody is talking about it or companies are moving away from it. Unfortunately I am facing this every day.

As this article contends - Notes is (and was) a vastly better product. As was 1-2-3. It's not how good the product is, it's how much push is given to the sales staff. You see the same problem in stores like Sears and K-Mart (now merged), where the sales staff doesn't care. Successful stores, like any firm that wants to sell, has to push all it's lines. If you salesforce is motivated, they can sell snow to people in a blizzard. If it doesn't put money in their pocket, they won't give free water away.